30 January 2012

It's a familiar story: in so many policy areas - health, education, the environment, for instance - adherence to process is more highly rewarded than socially desirable outcomes. So we have a blizzard of micro-targets combined with a disintegrating physical and social environment and a disengaged electorate. Policymaking itself is an arcane process, comprehensible only to those who are paid to participate in it or who are lobbyists for powerful interests.

And it's the same in the justice system, at least in the US, where "Six million people are under correctional supervision in the U.S.— more than were in Stalin’s gulags." Adam Gopnik explains:

accused criminals get laboriously articulated protection against procedural errors and no protection at all against outrageous and obvious violations of simple justice. You can get off if the cops looked in the wrong car with the wrong warrant when they found your joint, but you have no recourse if owning the joint gets you locked up for life. You may be spared the death penalty if you can show a problem with your appointed defender, but it is much harder if there is merely enormous accumulated evidence that you weren’t guilty in the first place and the jury got it wrong. The caging of America, Adam Gopnik, 'New Yorker', 30 January

Mr Gopnik's article goes on to point out that the large falls in US crime rates over the past three decades, especially in New York, have many explanations, few of which could be known in advance.

I think this well-written piece helps make the case for targeting outcomes, as I have advocated, whether or not by using Social Policy Bonds. Society is so complex that a single group of policymakers cannot know in advance with any certainty the underlying relationships between, say, prison sentences and crime rates. Or between spending on schools and literacy. Or between greenhouse gas emissions and the numbers of people killed or made homeless by adverse climatic events. Where cause and effect are clear - as say, between inoculation rates and disease - there is a strong case for government working to achieve a social target. Where it is not there is still a strong case for government setting the target and raising the revenue for its achievement. But, instead of trying to achieve it directly, it would, I think, do better to contract out the achievement to a motivated, diverse and adaptive private sector. Social Policy Bonds are one way in which this division of labour could be carried out efficiently.

27 January 2012

But the LDP [of Japan] shows the same intransigence that has been its stock-in-trade since it lost power in 2009. It vows to block the tax bill, even though raising the consumption tax has long been a plank in its own policies. Generational Warfare, 'The Economist', 28 January

Once more, we see the unimportance of outcomes to today's politicians. The right policy rejected because it's proposed by the people on the other side. We - that is, the entire democratic world - desperately need a new political system. One that targets outcomes that are meaningful to ordinary people, not politicians, corporates or government agencies. The old system is just not fit for purpose.

19 January 2012

Cancer patients who need chemotherapy should receive it within four weeks of being assessed, under new [New Zealand] government health targets. The cancer target at present requires hospitals to provide radiation therapy within four weeks of assessment. From July 1, hospitals would also have to ensure that patients needing chemotherapy received treatment within four weeks. Source

It's a shame that the New Zealand Government has learned nothing from other countries' mistakes. Targets like this have nothing to do with the broader health of the population. They will be so manipulated as to become meaningless or, worse, divert resources into (apparent) compliance and away from health care. In the UK, for instance, we have seen ambulances delaying their arrival at hospitals, so that targets for seeing patients within four hours of arrival can be met. It's not difficult to imagine ways in which New Zealand's new chemotherapy target will be similarly gamed, at the expense of people's health. This is the sort of micro-management that did so much to cripple the Soviet Union. Private corporations with a narrow focus on a few accountancy ratios are prone to similar errors. In theory at least competitive pressure would ensure that the mismatch between targets and reality cannot continue to worsen indefinitely. (In practice, if the corporations are big enough, they subvert government and change the rules.) But when government applies these micro-targets, there's little to bring them back into line. High-sounding, well-meaning experiments like this are rarely terminated.

We need to bring government back to its core focus: if its goal is to improve the health of its citizens, that's what it should target. Let a competitive private sector work out how best to achieve that goal. Government can still set broad health targets, and it can, and should, raise the revenue to achieve those goals. But it cannot possibly keep up to date with science, nor respond adequately to changing events or diverse circumstances. Only something like a Social Policy Bond regime, where people are rewarded for being efficient achievers of meaningful targets, can do that.

12 January 2012

Numerical targets, though they can never accurately measure everything of importance, are going to have to play a role in determining the efficiency and effectiveness of policy instruments. Many of our social and environmental problems can be attributed to (1) the private sector's use of accountancy measures, to the exclusion of anything else, in evaluating its own performance, and (2) the failure of the public sector to use any meaningful numerical targets.

Governments do use plenty of meaningless targets. Here's Theodore Dalrymple:

The Times Educational Supplement is Britain’s most important journal for the teaching profession. In the January 6 edition, it described the methods school principals use to deceive the official inspectorate of schools. The inspectorate’s reports, in the words of the TES, “are vital checks on the performance of schools, relied on and trusted by parents and those running and working in the system.” The precise extent of the principals’ cheating is, in the nature of things, difficult to measure. But once the principals know that an inspection is coming, many employ techniques such as paying disruptive pupils to stay home, sending bad pupils on day trips to amusement parks, pretending to take disciplinary action against bad teachers, drafting well-regarded teachers temporarily from other schools, borrowing displays of student work done in other schools, and so forth. It’s Gogol’s Government Inspector translated to the educational sphere. The Less Deceived, 'City Journal', 10 January

What government should be doing is targeting broad measures that are meaningful to real people. Real people, as opposed to government agencies or corporate accountants. In education government should be targeting, at the very least, functional literacy and numeracy.

11 January 2012

Americans...don't trust the federal government. A few decades ago they did, but now they don't. Why don't Americans trust their government? It's not because they dislike individual programs like Medicare. It's more likely because they think the whole system is rigged. .... [R]ent seeking groups are dispersed across the political spectrum. The tax code has been tweaked 4428 times in the past 10 years, to the benefit of interests of left, right and center. 'International Herald Tribune', Asia Edition, 11 January

This malaise is common to all the western democracies. Interestingly, Mr Brooks mentions sugar subsidies, which benefit just a few wealthy individuals, while "imposing costs on millions of consumers". It's the persistence of such subsidies, in the face of decades of evidence pointing out their disastrous economic, distributional and environmental impacts, that makes one despair about whether our governments can ever reform themselves. And, if they can't, then where is the initiative going to come from?

Perhaps the most benign impetus for reform would come from a shift toward rewarding outcomes, rather than, as now, the specific interest groups - public or private sector - that currently seem to run government. Social Policy Bonds would subordinate all government funding to meaningful results. Under a bond regime only the most efficient achievers of social and environmental goals would receive taxpayer funding.

Clearly the current system is losing the consent of the majority of the people it's supposed to serve. Perhaps it's time to try Social Policy Bonds. My book suggests how a transition to a bond regime need not be too drastic, but could be gradually managed.

08 January 2012

[US] national politics was doomed because voters were no longer debating one another using a commonly accepted set of facts.

Life and society are so rich and complex that we can easily extract evidence that supports (or appears to support) virtually any outlandish claim we want to make - or its complete opposite. There are plenty of funds and incentives to make the effort worthwhile. Sometimes these exercises are cynical. But often not. We can see this very clearly when looking at the current financial crisis: respectable commentators put forward coherent arguments for much more, or much less, stimulus spending.

Social Policy Bonds would bypass such arguments and all their attendant cynicism by targeting desired outcomes, rather than what people think, or are paid to say they think, are the means of achieving them. It would be up to holders of the bonds to identify and exploit the relationships between cause and effect, which is so difficult to do in our complex society. By focusing on outcomes, policymakers could concentrate on working out exactly what we want to achieve, rather than get bogged down by the interest groups, vested or not, who have their own agenda.

If this sounds far-fetched, we need look only at climate change to see how the debate has been effectively side-tracked into an expensive and ineffectual irrelevance by doing things the conventional way: trying to prove something to the satisfaction of people who oppose doing anything before taking action. A bond regime would instead be rewarding people for achieving certain specified goals, or a combination of them, which could be expressed as a wide array of physical, financial and social variables. It would be up to the investors in the bonds to work out the relationships, and they would be rewarded for doing so and for continuing to do so, until our goals have been achieved. In this case, as in others, there need be no general (and often impossible to achieve) agreement on the facts before taking meaningful action.

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Social Policy Bonds

See the Social Policy Bonds website for overviews and links to articles, papers, news and more about Social Policy Bonds. Click on the image in the panel below to download a 2400-word article published by the Institute of Economic Affairs, London.

Social Policy Bonds in 2400 words

Social Policy Bonds in the media

25 May 2018: a short article on Social Policy Bonds and their possible application in India, appears on Market Express (India). It is by Dr Ashok V Desai and titled Incentivizing welfare.

9 October 2015: An article by Greg Bearup on the genesis of the Social Policy Bond idea, and application of a version of it in Australia appears in the Weekend Australian Magazine. (The article can also be downloaded as a pdf from here.)

October 2013: Professor Robert Shiller of Yale University, is named as one of the three winners of the 2013 Nobel Prize in Economics. His Nobel Prize lecture (pdf) delivered on 8 December, mentions Social Policy Bonds. Professor Shiller has for many years encouraged my work on Social Policy Bonds, beginning in late 1996 when he sent me this letter.

3 May 2012: An audio talk by Nobel Prize winner Professor Robert Shiller at the London School of Economics, in which Social Policy Bonds are briefly mentioned, is available here.